What is pre-open market trading?

Premarket trading refers to trading that takes place on exchanges prior to regular market trading hours. Premarket stock trading occurs between 8:00 AM and 9:00 AM. Premarket trading volumes are typically lower than regular trading hours. Because there are very few participants before the market hours (i.e. It is difficult for investors to complete transactions after 9:30 AM.

Investors have less liquidity in premarket sessions. Converting stocks into cash may slow down the price adjustment.

Background for premarket trading

Pre-market trades can be executed using computer-based systems, including alternative trading systems or electronic communications networks. For a variety of reasons, traders use premarket trading for:

• You can see the direction of individual securities and the market when regular trading begins.
• To be ahead of the market reaction to news such as overseas events, political instability and other factors that could affect markets or individual securities.
• A corporation's earnings announcement can cause the stock price to rise or fall after the market closes. The premarket trader may then attempt to sell or buy the stock before the regular session.

What is pre-open market?

Pre-open market sessions take place from 9:00 AM to 9 :15 AM at both the Bombay Stock Exchange and National Stock Exchange (NSE). Pre-open market refers to the trading activity that takes place before the regular stock exchange session.

How does premarket trading work?

Electronic communication network (ECNs) allows for extended session trading. Through Electronic Communication Networks (ECNs). ECNs keep track of buy orders at predetermined rates and when there is a matching sell order, it acts as a matchmaker, bringing them closer to one another. Premarket trading sessions are very volatile because of the tight liquidity levels.

Let's first learn some basic terms, e.g. Various Type of orders placed on the market

• Market Orders If the price of an order is not stated during selling or buying, it will be executed according to the market rates.
• Limit orders: Orders that specify the price and number of orders for buying or selling are executed after matching orders have been found.

The session lasts 15 minutes and consists of three slots.

• 9:08 AM to This is the order collection period. The order collection period is when orders can be modified and canceled.
• 9 :08 AM - 9:12 AM: It is also known as the order matching period or trade confirmation period. This is when orders are confirmed on the basis of the price identification method, also known as "Equilibrium Price Determination" or "Call Auction". This period is not allowed for cancellation or modification of an order.
• 9 :12 AM - 9.15 AM: This buffer period is also known as the transition period.